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The Dow Holds Its Breath for a Cliff Deal

A brief look at the market's moves so far today.

Today's the day we've all waited for: the last day before higher tax rates and spending cuts are scheduled to take effect. Despite a long weekend of negotiations, lawmakers are still struggling even to come up with a short-term solution to the fiscal cliff that would give them more time to come up with more sweeping reforms. So far, investors seem optimistic that some deal will be made, as the Dow Jones Industrials (DJINDICES:^DJI) are down by only four points as of 10:45 a.m. EST, and broader markets are actually up substantially.

Of course, investors need to realize that whatever happens with the fiscal cliff won't change the longer-term issues facing stocks and the U.S. economy. Gains from economically sensitive Dow stocks Caterpillar (NYSE:CAT) and General Electric (NYSE:GE) today seem to reflect broader optimism not just about U.S. tax and fiscal policy, but also for the state of global industrial activity in general. GE has aimed to focus its business on the highest-value industries it can with moves like last week's sale of its hydraulic thrust-reverser actuation systems business to Woodward (NASDAQ:WWD) last Friday. Meanwhile, Caterpillar is arguably more concerned about the impact of China's economy on construction and infrastructure spending than on the much slower-growing U.S. economy, despite the company's success in milking the domestic market for profits.

Moreover, companies have the ability to respond to whatever conditions the economy throws at them. For instance, DuPont (NYSE:DD) has struggled this year as its performance chemicals and electronics divisions sagged. But with a continuing boom in the agricultural sector, DuPont has the chance to matchMonsanto (NYSE:MON) and more ag-focused competitors in the chemical space. Just about every company has segments that will be winners or losers depending on what happens in Washington, and the right moves can help those diversified companies pick their most lucrative opportunities in 2013 and beyond.

Author

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.
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